TREASURIES-Yields rise as Fed minutes back multiple rate hike view

Reuters Staff

5 Min Read

* Treasury's auction of U.S. five-year notes saw average
demand
* Fed minutes show FOMC expectation of upside growth
trajectory
* U.S. 2-year hits 9-year high; 30-year yields touch highest
since
July 2015
(Recasts, changes byline, adds auction results, analyst
comment, table, updates prices in text)
By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 21 (Reuters) - U.S. Treasury yields rose on
Wednesday in choppy trading, after minutes of the latest Federal
Reserve meeting affirmed expectations of further rate increases
this year, with economic growth seen accelerating.
U.S. 30-year yields, which move inversely to prices, hit
their highest level since July 2015 after the Fed minutes, while
those on 10-year notes hit session peaks.
Yields on U.S. two-year notes, the maturity most sensitive
to interest rate expectations, hit fresh 9-1/2-year highs
earlier in the session.
The Federal Reserve's rate-setting committee showed more
confidence in the need to keep raising interest rates at its
last policy meeting, with most believing that inflation would
perk up.
It added that recent information received by voting members
on inflation "along with prospects for a continued solid pace of
economic activity provided support for the view that inflation
... would likely move up in 2018."
"There was not a whole lot of surprise in the grand scheme
of things," said Michael Skordeles, U.S. macro strategist at
Suntrust Advisory Services in Atlanta.
"It lined up with market expectations for a continued
gradual pace in interest rate hikes. (The minutes) reassured
that there won't really be a whole lot of change despite having
a regime change," he added.
In mid-afternoon trading, U.S. 10-year Treasury yields
were at 2.931 percent, up from Tuesday's close at
2.893 percent.
The U.S. 30-year bond yield touched 3.218 percent
, the highest since July 2015, up from Tuesday's
3.155 percent.
The yield on the two-year Treasury note was at
2.266 percent after hitting a nine-year peak of 2.282 percent
earlier in the day.
The Treasury market showed little reaction to an average $35
billion U.S. 5-year note auction, which was part of the week's
$258 billion issuance intended to help fund President Donald
Trump's tax overhaul and a two-year budget deal.
The tax overhaul signed into law in December is expected to
add as much as $1.5 trillion to the federal debt load, while the
budget agreement would raise government spending by almost $300
billion over the next two years.
Demand from investors was fair, analysts said.
The Treasury notes sold at a yield of 2.658 percent versus
2.660 percent at the bid's close, with a 2.44 bid-to-cover
ratio, slightly below last month's 2.48.
The auction showed direct bidders taking 12.7 percent, the
highest since August 2017. Indirect bidders took 58 percent of
the offer, the smallest since April 2017, and dealers took 29.3
percent.
February 21 Wednesday 2:58PM New York / 1958 GMT
Price
US T BONDS MAR8 142-26/32 -1-2/32
10YR TNotes MAR8 120-60/256 -0-64/25
6
Price Current Net
Yield % Change
(bps)
Three-month bills 1.6175 1.6467 -0.007
Six-month bills 1.8075 1.8495 -0.006
Two-year note 99-246/256 2.2701 0.009
Three-year note 99-124/256 2.4303 0.016
Five-year note 98-162/256 2.6721 0.024
Seven-year note 97-200/256 2.8546 0.036
10-year note 98-104/256 2.9353 0.042
30-year bond 95-224/256 3.2154 0.060
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 26.00 -0.75
spread
U.S. 3-year dollar swap 23.75 1.75
spread
U.S. 5-year dollar swap 12.50 2.75
spread
U.S. 10-year dollar swap 2.75 1.75
spread
U.S. 30-year dollar swap -16.75 0.00
spread
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Kate Duguid and April Joyner; Editing by Meredith Mazzilli)